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Four Safe Money Principles for Successful Investing in Volatile Markets

05/28/2020 6:00 am EST

Focus: STOCKS

Mike Larson

Editor, Weiss' Safe Money Report

Here are four Safe-Money principles for investing in the age of Covid-19 from Mike Larson.

Will opening up the economy lead to a second wave of infections and shutdowns? Or is the worst of the Covid-19 outbreak behind us?

Will the nature of business investment and consumer spending be changed forever? Or will we just go back to “normal” as if nothing happened a few months down the road?

These are the big-picture questions policymakers, politicians, pundits, and others are wrestling with. And while I certainly have my thoughts, no one can possibly have all the answers. That’s why the markets continue to swing wildly from day to day, week to week, and month to month.

So, what can you do as an investor? What guideposts can point you in the right direction? How should you position your portfolio in light of all the uncertainty?

Simple. Use the same, four “Safe Money” investing principles I do. They helped investors prosper handsomely before the virus outbreak and they should help them to continue prospering long after it runs its course.

First, if I’m going to recommend a traditional stock or exchange traded fund (ETF) investment in this environment, I need to know it’s a high-quality one. Not just based on my own opinions. But on the time-tested, completely unbiased, quantitative evaluation provided by our Weiss Ratings system.

Why do I use the Ratings as a core starting point for investment selection? Because they work. The system incorporates multiple fundamental, technical, and momentum-based factors to evaluate the underlying strength, or weakness, of tens of thousands of available investments. That, in turn, gives me a strong jumping-off point for my own research.

My main focus is on stocks or ETFs rated as “Buys.” But I’ll occasionally recommend a “Hold”-rated name if my research shows it’s poised to climb our Ratings ladder over time.

Second, I need to see adequate trading liquidity and reasonable market capitalization. Too many esoteric, illiquid, thinly traded investments went straight into the tank when markets tumbled in March. That’s just a taste of the kind of pain they could dish out in a longer-lasting bear market.

Third, I want market-beating income potential and solid dividend growth. In the world of zero Interest Rate Policy (ZIRP) – and, potentially, negative interest rates – yield is critical. But not just artificially juiced yields that the underlying companies can’t afford to offer for the long run. They have to be sustainable and growing.

Finally, I need to see reasonable amounts of volatility and underlying technical momentum. I don’t want to buy a bunch of turkeys that might surge 10% one day, only to plunge 15% the next. And I certainly don’t want to target so-called bargains that just keep getting cheaper because of serious debt-related issues or other problems.

That last bit of guidance is most important in this economic crisis. Weaker, hobbled companies like Hertz Global Holdings (HTZ) and J.C. Penney (JCPNQ) that were already struggling pre-virus need to be avoided at all cost. It’s no wonder both of them recently filed for bankruptcy protection, with Hertz struggling under a $19 billion mountain of debt and J.C. Penney buried under $4 billion.

If you focus on stocks, ETFs, and mutual funds that incorporate these Safe Money guidelines, I’m convinced you’ll come out of this treacherous environment in much better shape than many others. And if you add in other, winning investments that don’t come with the same risks as traditional stocks – including, say, precious metals and miners – you should do even better!

Subscribe to Weiss ratings' Safe Money Report here…You can check the Ratings on your investments using the search tool at the top of our website here.

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